Yahoo to Replace Yang as CEO, Ending Rocky Reign

SAN FRANCISCO - Yahoo Inc. co-founder Jerry Yang is stepping down as chief executive, ending a rocky reign marked by his refusal to sell the Internet company to Microsoft Corp. for $47.5 billion — more than triple Yahoo's current market value.

The change in command announced Monday won't be completed until Yahoo finds his replacement. The Sunnyvale, Calif.-based company said it is interviewing candidates inside and outside Yahoo in a search led by its chairman, Roy Bostock, and the executive recruitment firm Heidrick & Struggles.

"Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level," Bostock said.

Yang, who started working on Yahoo with Stanford University classmate David Filo in 1994, will revert to "Chief Yahoo," a titular role he filled before replacing former movie studio boss Terry Semel as CEO in June 2007. He will also remain on Yahoo's board of directors.

"I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation," Yang said in a statement.

Sue Decker, Yahoo's president, is expected to be among the candidates to succeed Yang, although she has been an integral part of the management team that has exasperated the company's shareholders.

Although Yang had publicly expressed his desire to remain at the helm, Yahoo's board faced intensifying pressure to cast him aside as the company's shares plunged to their lowest levels since early 2003. The stock fell 19 cents Monday to close at $10.63 — a fraction of Microsoft's last bid of $33 per share in early May.

Microsoft CEO Steve Ballmer huffily withdrew the offer after Yang sought $37 per share. The negotiating breakdown triggered a shareholder revolt led by billionaire investor Carl Icahn, who called for Yang's ouster in July. Icahn reached a truce that put him and two allies on Yahoo's 11-member board, but he still has been lobbying for Yahoo to pursue a deal with Microsoft that would either involve selling the company in its entirety or just its search engine, which ranks a distant second to Google Inc. An Icahn spokeswoman said the financier had no comment Monday.

Monday's shake-up comes as no surprise, given the challenges facing Yahoo.

"The shareholders were ready to pick up pitchforks and torches," said technology analyst Rob Enderle. "If Jerry wasn't a founder, he already would have been gone" months ago.

Investors appeared to be pleased with the decision to replace Yang, as Yahoo shares climbed more than 4 percent in Monday's extended trading.

Yang, 40, had been pursuing a strategy that he thought would prove Yahoo was worth more than Microsoft was willing to pay, but the rapidly deteriorating economy made a comeback seem increasingly unlikely. As it is, Yahoo's earnings have been eroding for three years, disillusioning investors and spurring a management exodus that indicated even Yang's own troops were losing faith in him.

After squandering the opportunity to sell to Microsoft, Yang tried to boost Yahoo's profit by forging an advertising partnership with Google.

But that backup plan fell through two weeks ago when Google walked away from the deal to avoid a court battle with the U.S. Justice Department, which had concluded the partnership would have throttled competition in the online advertising market.

On the day the Google partnership collapsed, Yang publicly said he thought Microsoft should hook up with Yahoo. But Ballmer threw cold water on the idea the next day by declaring he doubted a deal could be worked out.

Given the acrimony surrounding the breakdown of the earlier talks between Ballmer and Yang, some analysts have speculated Microsoft will be more willing to renew negotiations if Yahoo had different leadership. Microsoft declined to comment late Monday.

Yang had also been exploring a possible acquisition of another fading Internet star, AOL, but most analysts panned the idea as a desperation move that threatened to hurt Yahoo more than it would help. As Yahoo shares sank, a major acquisition became a moot point anyway because the depressed stock price made it more difficult to finance a deal.

Although Yang's tenure as CEO is unlikely to be remembered fondly by shareholders, his legacy as an Internet visionary remains secure.

Yahoo's remarkable rise began in 1994 when Yang and Filo began compiling a directory of their favorite Web links while working on their engineering doctorates in a trailer at Stanford University. They initially called their site "Jerry and David's Guide to the World Wide Web," only to later decide to switch to an acronym for "Yet Another Hierarchical Officious Oracle."

Yang and Filo became two of the Internet's first billionaires not long after Yahoo went public in 1996 with fewer than 50 employees on the payroll. At the height of the dot-com boom, Yahoo's market value stood at $130 billion. It was less than $15 billion Monday.

After struggling through the dot-com bust, Yahoo bounced back to become more profitable than ever under Semel.

But while Yahoo focused on developing more content to entice consumers, Google focused on honing its search technology to help people find whatever information they needed anywhere on the Web. The strategy paid off as Google built a platform that served up ads that were tied to the requests entered into its search engine, helping to it eclipse Yahoo as the Internet's most powerful company.

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